Is Silicon Valley Reproducible?

sunil99 asks: "Paul Graham, in his latest essay, looks at the ingredients which make Silicon Valley what it is. From the essay: 'Could you reproduce Silicon Valley elsewhere, or is there something unique about it? It wouldn't be surprising if it were hard to reproduce in other countries, because you couldn't reproduce it in most of the US, either. What does it take to make [a Silicon Valley]?'. In his opinion: 'I think you only need two kinds of people to create a technology hub: rich people and nerds'. He concludes that if a city can attract these people, it can stand a chance of replicating Silicon Valley. What do you think of Paul's opinions? If you would like some changes to the current Silicon Valley, what would those be?" While the people are an important part to the Silicon Valley experience, they are only part of the requirement. What local characteristics must also be present, even if Silicon Valley is to be duplicated on a smaller scale? What draws technology companies to a specific location?

San Francisco is not hub of the SIlicon Valley

[Coward Anonymous]

His basic premise about nerds and rich people sounds about right. His meandering definition of a nerd attractive city is a off the mark and plain wrong with regards to San Francisco. San Francisco was not considered part of Silicon Valley until recently. Silicon Valley was typically considered to be 32 miles south of San Francisco, from Palo Alto in the north to the environs of San Jose in the south. Sprawling, faceless San Jose is definitely not a "nerd town" per his description and the neighboring towns are plain suburbia.
Most of the startups you can think of - Google, Yahoo, HP, Apple, Cisco, etc. were started in that southern area. Much fewer were started farther north or in San Francisco proper.

Re:Short Answer No

[Jeffrey Baker]

Way to leave out Berkeley ;)

But really, the universities and the national laboratories have been key in the region's history. Why else do dozens of Nobel Prize winners live here?

As for the original question, Silicon Valley has been reproduced on smaller scales in several places. Cambridge is notable, as is Beaverton (home to many companies which are often mistakenly said to be in Silicon Valley).

Re:Lots of things

[Nexx]

bankruptcy in Japan (your children hounded at school, people looking at you strangely for not committing suicide)

Wow, that's so... so... 1980's. Or 1880's. Ritual suicide hasn't been a part of the business culture for at least a decade.

Impressions of a visitor

[EMB Numbers]

I have never lived in Silicon valley, but I have been a regular visitor for about 15 years. I travel there for business meetings and conventions usually for a week at a time. I have been all over the valley at all times of year, etc. My follow-up question would be "which Silicon Valley ?"

Stanford is certainly a great source for alpha nerds, but the founding technology seeds of Silicon valley were not started by Stanford grads. Think HP, Varian, Xerox PARC, National labs, Nasa, Apple, ... Stanford fuels the fire but isn't necessary. I always enjoy overhearing conversations about mutex locks and Posix compliance and Java Beans and silicon-on-copper while buying a Barbie for my daughter, but there are concentrated nerd communities in many places nowadays.

As for rich people, why would anyone locate/fund a start-up in Silicon Valley now ? The cost of doing business there is outrageous. There are great people in many places where start-up costs are half or a third and you don't even have to leave the USA. Consider Research Triangle in North Carolina. Venture capital can be spent anywhere, and it goes so much further other places.

Economically, the valley is the poster city for comparison between the haves and the have-nots. Compare the have-nots who drive 2 hours to work every day and raise 5 children in a tenement vs. the childless power couple with dual 6 figure incomes, a 1000sf ranch in Mountain View, and evidently dead end genes.

Culturally Silicon Valley has some "issues."

People used to raise families there, but not anymore. I always ask people I meet about their families, and few have any children. Almost none have more than 1 child. Families with the famous 2.5 children used to live in those ubiquitous 1000sf 1950's ranch style houses.

The Silicon Valley of the early 90s changed radically in the late 90s and changed again after the .com bust. The Fairmont Hotel in downtown San Jose used to be a great place to stay. You could step out of the lobby and get on the light rail. You could walk to restaurants, a mall, and clubs late into the night and the sidewalks were still crowded. The light rail is still there, but there is no-place to go anymore. During the late 90s, office space became so precious that the malls, restaurants, and clubs were forced out to make way for higher paying tenants. Then the bubble burst and Downtown San Jose was left a lifeless corpse. Now the places to stay when on business are Sunnyvale or Mountain View. I liked the "culture" of the valley better in the early 90s.

Re:First thing's first

[seanadams.com]

Even before the 20% pop we've seen in the last two years, the valley's house-price-to-income ratio was second only to Hawaii.

That means we have lots of old rich people who aren't going anywhere, and a working class that generally won't have a chance at buying real estate any time soon. Even if the "bubble" burst back to 2002 prices, it won't make housing much more accessible to workers living in the valley, only wealthy immigrants.

I'm confused

[saratchandra]

Isn't your statement contradictory? First you say it's 1980/1880's, then you say it's not been part of business culture for a *decade*.

Flip flopper. Just kidding :) P.S. Decade = 10 years (mod me as informative please,please,please)

Re:eh?

[georgewilliamherbert]

Lame. Try looking out of areas which were orchards 30 years ago. Half the south bay was agricultural back then (237 used to be a surface street, through fields mostly... and was the least preferred route for decades, until it finally got the freeway treatment). The route that 85 takes that now connects to 101 on the south side of San Jose... used to be through mostly open fields, not that long ago.

All (nearly) those former agricultural regions are now high density housing or business parks. But the rest of the valley, where houses haven't been torn down and rebuilt with property-line hugging multistory monsters, has older homes with character.

Los Altos, where I grew up, is succumbing to the property line multistory monsters slowly. But Mountain View and Sunnyvale and Cupertino and Santa Clara mostly aren't.

the black plague

[dino213b]

What people fail to understand is that the Renaissance was started in Italy because of a vacuum, more or less. The black plague swept through Europe, starting from Italy and spreading outward. Therefore, Italy was the first to recover from it and also the first to recover its economic situation and its population. What happened afterwards was the good old case of arts following financing.

As for the Silicon Valley, this is my speculative side talking now: I believe it was the level of regional education and sound economic framework that allowed it to develop there. Think, why hippie California and not Bangladesh? I don't think introducing a plague would help us recreate it. On the other hand, another world war just might do the trick.

Re:Northern Virginia?

[feijai]

It's obvious that the government has benefitted the Northern Virginia technology corridor by its proximity, but it's hardly the only reason for the influx of cash. Much of it is the internet boom. MAE East. AOL. UUNet. Of course, the governmental "IT solution" consultant shops (the "beltway bandits")can't be overlooked. Northrup Gruman. Boos Allen and Hamilton. SRA. And the massive SAIC.

At any rate: Graham's article betrays a surprising lack of knowledge about situations outside his orbit. Of course we can reproduce Silicon Valley: we already have exceeded it. The Northern Virginia technology corridor is now the largest in the nation, and growing, at a time when Boston, Silicon Alley, and Silicon Valley are not exactly in an expansion phase. The list of major firms headquartered in Fairfax, Prince William, Arlington, or Loudon counties or with a major presence there is *astonishing*.

Silicon Glen

[zerosignal]

In Scotland there's an area called Silicon Glen:

http://en.wikipedia.org/wiki/Silicon_Glen [wikipedia.org]

I did my Masters research on this..

[leeum]

... so I feel interested enough in this topic to post a comment. :)

The "success" of Silicon Valley is being reproduced in different parts of the world - Cambridge in the United Kingdom especially springs to mind. Having spoken with some of the people heavily involved in this project, we determined that there were several key ingredients that made Silicon Valley essentially unique and hard to reproduce.

The superficial similarities are easy to point out - there are quite a large amount of venture capitalists in both places (or easy access to venture capital money), proximity to large research universities. However, the differences between the two locations are telling.

Firstly, as several other posters have described, the attitudes towards bankruptcy can be vastly different. In our study, we looked at differences in attitude between the United States, the United Kingdom and the Netherlands and found that while failure in your first entrepreneurial undertaking is considered almost de rigueur in Silicon Valley, the culture in the UK and the Netherlands tends to be less forgiving. While this is now changing, there are still many people with good ideas who are still worried about taking on high-risk projects because the perceived cost of failure is much higher.

Secondly, the attitude of the VCs and business angels towards companies. For example, we found that VCs in the Netherlands tended to have a narrower scope than VCs in both the United Kingdom and the United States. We spoke to a few large VC firms in the Netherlands and found that many of them invested only in companies whose main base of operations would be in any one of the Benelux countries. Their justification for this being that they felt it lowered their risk profile.

I also believe that Paul Graham might have downplayed the influence of governmental policy on entrepreneurship. While I'm not too sure about the situation in Silicon Valley, certainly in the UK and NL, there are entrepreneurs who view VC financing as a "lender of last resort", as it were. They've heard many stories of how VCs put very restrictive covenants on the way business is conducted, for example the need to sell their stake in the company after a certain amount of years, and they are wary of this before seeking out such financing. The first port of call for money tends to be grants, either from the nearby universities or from the government. These grants have the advantage of being relatively liberal (once you've convinced the committee to give you the money, they maintain a pretty hands off approach to the way you run your business) and are a good way to build value in the company with a very low cost to the founders.

There is also some evidence that rates on personal income tax and capital gains tax can have a strong effect on the rates of entrepreneurship, although I wouldn't want to comment too much on this as I haven't studied this avenue in very much detail. There are, however, papers that go into this in more detail. Notably:

• Cullen, Julie Berry, Gordon, Roger H., 2002. Taxes and Entrepreneurial Activity: Theory and Evidence for the U.S. NBER Working Paper 9015

• Gentry, William M., Hubbard, R. Glenn, 2005. "Success Taxes", Entrepreneurial Entry, and Innovation. NBER Innovation Policy & The Economy, Vol. 5 Issue 1, p87-108

• Keuschnigg, Christian, Nielsen, Søren Bo, 2003. Tax Policy, Venture Capital, and Entrepreneurship. Journal of Public Economics, Vol. 87 Issue 1, p175, 29p.

I could go on and on about this, but the point is that this is still an active topic of research and the actual drivers of entrepreneurship can be quite hard to elucidate. There is a very good book that serves as a good launching point for further study in this topic entitled "Clusters of Creativity: Enduring Lessons on Innovation and Entrepreneurship from Silicon Valley and Europe's Silicon Fen" by Rob Koepp. Book is readily available from Amazon.

It already exists, in Ottawa(that's in Canada, eh)

[AnonNoMore]

I just did a quick scan of Paul's article, and decided that yes, it was worth my while to put in a good work for my current home.

Sometimes affectionately called "Silicon Valley North", by people who live here, the Ottawa-Gatineau region currently (as of Jan06) has over 1,800 High tech companies employing just over 76,000 people. See: http://www.ocri.ca/email_broadcasts/ottawafacts/04 06_ottawafacts.html [www.ocri.ca]

Looking over the list of attractive qualities required, here's how Ottawa shapes up:
Universities: Carelton and Ottawa U, both with strong engineering programs.

Culture: NAC orchestra, National Ballet of Canada, The National Gallery of Canada, Chamber Music Festival, Blues Festival.

Geek Recreation: over 100 Km of bike paths, Mountain Biking in the Gatineau Hills, 4 ski hills within an hour's drive, and Mont Tremblant (world class) 2 hours away, the world's largest(over 7km long) skating rink on the Rideau Canal).

Real Estate is still reasonable, and Ottawa has a few lovely older established areas that suit the "geek" attitude such as the Glebe and Westboro(my fave). Lots of coffee houses and Cafe's, and several lovely little towns with in a one or two hour drive for weekend getaway's (Wakefield, Merrickville and Westport are a few that I have personally experienced)

Ok, I'm gushing, so I will stop now, but its a great place to be.

Sure there's winter, but this town is a "get out and enjoy it" kind of place no matter what the season.

Re:Key elements of Silicon Valley

[Anonymous Coward]

Las Vegas has certain legal and cultural details that make it unique in the US (eg, legal prostitution and the fact that Las Vegas was neutral ground for the Mafia).

Nitpick: Prostitution is illegal in Las Vegas. In more detail: prostitution outside of brothels is illegal; brothels are illegal in Nevada counties with populations over 400,000; Clark County has a population over 400,000; Las Vegas is located in Clark County. Source: Wikipedia [wikipedia.org].

How Silicon Valley really works

[Animats]

I live in Silicon Valley, have since 1974, and live within walking distance of downtown Palo Alto. I went to Stanford, have been through some startups, and did reasonably well. So here's how I see it.

Stanford plays an interesting role. Stanford was started by a robber baron, and it still shows. Stanford isn't primarily a university. It's really a landowning company and investment bank [stanfordmanage.org] that runs a school on the side for the tax break. This is clear if you look at Stanford's IRS filings. This works out quite well for all parties. Stanford's investment unit invests in private venture capital partnerships, which is an unusual investment for a university but works out well, because they have people who can evaluate which portfolios have enough potential winners to come out ahead.

The second item that made Silicon Valley is a little provision in the Californa Labor Code. This is the famous Section 2870:

• (a) Any provision in an employment agreement which provides that an employee shall assign, or offer to assign, any of his or her rights in an invention to his or her employer shall not apply to an invention that the employee developed entirely on his or her own time without using the employer's equipment, supplies, facilities, or trade secret information except for those inventions that either:
• (1) Relate at the time of conception or reduction to practice of the invention to the employer's business, or actual or demonstrably anticipated research or development of the employer; or
• (2) Result from any work performed by the employee for the employer.
• (b) To the extent a provision in an employment agreement purports to require an employee to assign an invention otherwise excluded from being required to be assigned under subdivision (a), the provision is against the public policy of this state and is unenforceable.

So what you do on your own time, unrelated to your employment, is yours. Period. And that's why employees can work on startups in their spare time. Few other states have that, and it's never something that seems to come up when other places try to copy California, because employers hate it.

Then there's 3000 Sand Hill Road, the address known to everyone who's ever had anything significant to do with a startup. This is a quiet little place near the intersection of Sand Hill Road and Interstate 280. It looks like a nice little housing development composed of concentric rings. The outer ring has houses and condos, and is adjacent to a golf course. The middle ring has small offices. At the center is a restaurant, the Sundeck. It's all very peaceful, and there's no indication that you're in one of the world's great financial capitals. Except that there's a directory board. On that directory board are all the big names in venture capital. Even the VCs who've outgrown the place maintain offices there. It's unique in the world; all the big players are in one small place and talk to each other.

Silicon Valley as a center of innovation is kind of slow right now. The dot-com boom messed it up. Before the dot-com boom, Silicon Valley was about doing cool stuff. The dot-com boom was about retailing. And retailing people just aren't that innovative. The huge increase in land prices pushed manufacturing out of the Valley. Then engineering moved to follow the manufacturing. Now, Palo Alto is really a kind of retirement town; you see students and old people, but not that many twentysomethings. In downtown Palo Alto, we lost Stacy's, one of the world's best technical bookstores, to get some store selling overpriced kitchen utensils. It's not clear if the Valley will come back, or remain the place you stay after you've made it.

But it's been great fun being here.